Five Misunderstandings Relating to Deleveraging: How and Why(No. 91, 2016)

2016-07-28

Abstract: There are five misunderstandings among some people going against the active and steady deleveraging process. One, some think that deleveraging requires neutral tight or even tight monetary policy. This might impose excessive burden on monetary policy and cause opposite effect. Two, some hold that deleveraging should mainly rely on stock market. This will go beyond the load of the stock market, leading to a superficial bull market and stock market bubbles. Three, some believe that household sector should be targeted as the main goal of deleveraging. This will bring about massive asset bubbles. Four, some argue that deleveraging is to deleverage the aggregate amount. This will result in negligence of liquidity risks and embedded leverage. And five, some maintain that deleveraging is a short-term task. This will give rise to reckless deleveraging and unexpected risks.